Saturday, May 4, 2013

Fixing manufactured housing

One of the casualties of the sub-prime crisis in the US has been the manufactured housing sector. Mortgages against manufactured homes have generally been significantly more expensive than those on traditional homes. That allowed some of these loans to be pooled and sold to yield-hungry investors, initially as ABS and later as part of CDOs.

Of course all that ended in 2008 and the manufactured home industry collapsed. Obtaining a mortgage on such housing became difficult, particularly as delinquencies rose. But now, with the US potentially facing a housing shortage (see post), one would think the number of manufactured units would rise. It hasn't. The number of units shipped each month is roughly where it was in 2009 - near historical lows.

Source: US Dep. of Commerce

Part of the reason the manufactured housing sector failed to make even a modest comeback has been the Dodd Frank regulation. Mortgages on these homes have been viewed as "predatory" because of their high rate and small size. And banks do not want to charge traditional interest on mortgages that historically have had relatively high delinquency rates. Higher rates on riskier loans does not make it "predatory" lending. Now there is a push in Congress to amend the Dodd-Frank regulations to make an exception for manufactured housing.

U.S. Representative Stephen Fincher introduced the Preserving Access to Manufactured Housing Act – a bipartisan bill to protect the availability of financing for affordable manufactured housing, a critical resource for low and moderate-income families across the United States. Specifically, the bill would amend the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to change the criteria by which home loans are classified “high-cost” while keeping in place strong consumer protections. It also clarifies the definition of loan originator for retailers so financing remains accessible for customers. The bill is being introduced with bipartisan support from Congressman Bennie Thompson (D-MS) and Congressman Gary Miller (R-CA).

“More than 22 million Americans, particularly those in rural areas, depend on access to financing for affordable manufactured homes,” said Congressman Fincher. “In the aftermath of the recent housing crisis, the manufactured housing industry was swept into a one-size-fits all regulatory approach to mortgage financing. The industry is already facing significant challenges: an 80 percent decline in new home production, the closure of more than 160 plants and the loss of more than 200,000 jobs. New regulations that don’t recognize the uniqueness of the industry will take housing options off the table for American families. The Preserving Access to Manufactured Housing Act is the solution to these problems.”

Given the need for yieldy product, some regional banks are likely to jump on this opportunity - which should be positive for the US economy. But it will be a while before the industry sees a recovery, even to the 1959 levels.